The equity futures are plunging this morning, with investors unnerved by yesterday’s announcement from the Trump Administration that it would soon place higher tariffs on all U.S. trading partners. President Trump said that a universal tariff rate of 10% would be applied to all countries (roughly 185 nations), but those with the biggest levies on U.S. produced goods would see much higher rates. The baseline trade duties will take effect on April 5th, while the individual tariffs will commence on April 9th.
Wall Street is still trying to decipher how the tariffs could impact specific companies. The initial prognostications are that businesses with significant exposure to China could be hurt the most, as the Trump Administration plans to hit the world’s second-largest economy with an additional 34% tariff on imports to the United States. This raises China’s overall rate to 54%. Not surprisingly, the major technology companies with significant operations in China and the apparel retailers that import a lot of their goods from Asia are under intense selling pressure in extended hours trading. The stocks of the multinational companies, many of which are members of the Dow Jones Industrial Average, also are looking at sharply lower openings. In general, there are not too many places for nervous investors to hide today outside of the gold and fixed-income markets.
This morning also brought some economic releases of note, but the reports are taking a back seat to the aforementioned international trade developments. Staying with the theme of the day, the Commerce Department announced at 8:30 A.M. (EDT) that the U.S. international trade deficit narrowed in February, but to a still very wide $122.7 billion. Meanwhile, the Labor Department reported that initial unemployment claims for the week ending March 29th totaled 219,000, which was down 6,000 from the prior week’s revised figure and still indicative of a tight labor market. The data did not have much of an effect on the equity futures that are still presaging a notable selloff when trading kicks off stateside. Many of the global equity markets are trading deep into negative territory today.
Later today, we will get the latest reading on nonmanufacturing (services) activity from the Institute for Supply Management. That report is expected to show that the services sector is still expanding and follows yesterday’s better-than-expected economic data releases. Specifically, payroll processing giant Automatic Data Processing (ADP) reported that private sector payrolls expanded by 155,000 in March, exceeding the consensus forecast of 120,000. This quelled some concerns about the labor market and gave a boost to equities yesterday, but that advance and then some will be quickly retraced at the start of trading today. The more positive economic data aside, Wall Street is worried that the onerous trade policies emanating from the White House will lead to a spike in prices of goods during a period when economic growth is slowing. This raises concerns that the United States could be headed toward a period of stagflation and that will put an additional focus on tomorrow’s release of the March labor report.
The nervousness on Wall Street over the Trump Administration’s trade policies has investors invoking a “flight to safety” strategy this morning. The price of gold, which is in the midst of a multiyear move higher on inflation concerns and now economic worries, is now trading above the $3,100-an-ounce mark. We are also seeing a pickup of interest in the more-defensive domestically oriented sectors (i.e., healthcare and utilities) and the less risky U.S. Treasury market. Treasury yields, which move inversely to prices, fell to their lowest levels since October.
In conclusion, the U.S. trade policies do remain a very fluid process and could change on a dime like we have seen since the start of the Trump Administration. Given this scenario, the recent broad-based selloff may eventually present an opportunity for those investors sitting on the sidelines with cash to gain stakes in some of the most prominent U.S. companies at discounted prices. Shares of all the “Magnificent Seven” companies are under selling pressure this morning. –William G. Ferguson
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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